Physician Finance Interview # 13

This is Physician Finance Interview #13, which is part of a series of posts is published each Friday. If you’d like to read the other PFI posts, you can find them here.

The focus of the interview is to investigate how other doctors have handled their money, income earning potential, assets, debts, and much more.

Tag along as we discuss success, failures, and advice that I hope will prove useful to many! Please, leave comments below about the answers and your thoughts!

My questions are in bold. The answers then follow.

If you are a medical professional of any kind, email me if you are interested in being interviewed and sharing your stories and experiences. The questions below are emailed to the person being interviewed and responses are returned, formatted, and published.

Your Story Background

1. Take a second to tell us about yourself so that others can see if their story relates.

I am a 58 year old general surgeon living in the Pacific Northwest.

I am married, with one child, and 23 years out of training. My entire medical training ran 12 years, to age 35, yielding board certification in general surgery and fellowships in burn surgery and cell biology.

I am semi-retired as of January 2018, semi-voluntarily and semi-compulsorily due to a marvelous, technicolor version of burnout.

2. What is your financial background?

At age 28, as a second year resident, I bought the only house I could afford on a residents salary with a federal mortgage interest credit program.

Early in training, I was introduced to a full service broker and invested small sums in an after-tax account, as I had no access to a qualified plan until my clinical fellowship in 1994-5. That was my first introduction to investing and I maintained that relationship until 2007. I asked a lot of questions, but didn’t learn much about how to analyze and choose individual equities during that interval.

During my clinical fellowship in 1994-5, I made the maximal allowable contribution with the employer match through TIAA/CREF. I still have that account and it has yielded about 7%/year on a $3000 contribution. That was my first retirement savings at age 34-5. I invested a great amount of sweat equity and earnings from moonlighting into my home, and the home appreciated about 2 fold over my costs in 6 years.

After entering practice, I participated in the practice qualified plan as soon as the contract allowed, and started seriously putting away deferred income in 1997 at age 37. I maximized contributions to my qualified plan until December 2017 (20 years). I intended to do so until age 67, but life happened in spite of my plans.

3. Were you given a head start in the financial world in anyway? Let us know if the opposite is true, too.

My father was a physician, and he supported me through junior college, 3 years of liberal arts undergraduate education and 4 years in a University of California medical school.

The total tab for those 7 years was about $60,000 and I contributed another $15-20,000 in wages from working summers and during the school year when and where I could.

4. What is your current net worth? List the assets that compromise your net worth.

5. When you finished training how much student loan debt did you have?

Due to my father’s assistance and steady part-time employment during school, I was able to finish medical school and residency debt free except for a small home mortgage.

Dollars & Debt

1. List your current sources and size of debt.

I have a sizable amount (nearly $700k) mortgage debt financed at slightly under 4%, on $1.2 million in property value. I have a secured line of credit with variable debt levels, under 200k, used for two business start-ups and short term support for living expenses between retirement and the subsequent source of income.

We don’t carry any consumer loans and we pay credit cards monthly.

2. If you had/have student loans, what is your student loan repayment plan?

I had a bit of undergraduate student loan debt, but paid it off with wages before graduating.

3. If you have a mortgage, do you plan to pay it off early or invest in the market? Why? If you don’t, why did you decide to rent?

I doubt it will be possible to pay off my mortgage before we sell the place some day, unless one of my businesses succeeds beyond our imagination.

We are mitigating the cost of the property through building on-site rental capacity for in-laws, other close family and either law or medical trainees. We will reduce our monthly carrying costs by half when that capacity has been achieved.

Income & Spending

1. What is your household annual income and will it be changing in the near future?

Across most of my career, I earned in the $300 – 350k range, and increasing in the last 6 years to 400-450k. My wife earned 60k between 1997-2004, then between 15-30k over the years as a part-time hospital based RN after our son joined the family until she retired in 2017.

As I began to realize that I probably wouldn’t make it to standard retirement age as a full time burn surgeon, I began to make adjustments to be able to live on half of my peak earnings.

I have two business start-ups, both started in 2018. Neither will pay me much in 2018. One has the capacity to be profitable within a few months of opening, the other is considerably more risky and wouldn’t be expected to start paying it’s owner in the first 3 years or so.

I am filling gaps with limited amounts of locums contract work.

[Editor’s Note: This section was previously incorrect. It is now correct as stated by the interviewee. TPP]

2. Do you use a monthly budget or track your spending? List your major expense categories for each month in your budget/spending.

We monitor our expenditures and follow category based tracking of checking and credit/debit accounts but have not been strict budgeters.

I maximized my qualified plan, shoveled plenty of money into cash value whole life insurance to the tune of about 100k per year total deferral, then we simply spent the remainder, first on home mortgage, then on private school, and after that on general cost of living categories.

We do not live extravagant lives from the standpoint of material belongings.

3. Does giving to charity or causes you believe in play a part in your financial life? If so, what percentage of your annual income goes towards this endeavor?

Over the years, our charitable giving has amounted to about 5% of after-tax earnings. In recent years, with volunteer work and several projects under that umbrella, contributions ratcheted up to as much as 15% of my paycheck.

Saving & Investing

1. Do you have an emergency fund? Why or why not?

We have always had cash equivalents against which we could easily borrow for emergencies, so we never kept more than 2-3 months of expenses in cash.

We had home equity credit lines, secured lines of credit against assets, cash value insurance loans, but I never let money sit idle in my checking/saving accounts.

2. What percentage of your income do you save towards retirement/investments each year? How did you determine this level of saving?

My pretax savings have been the federal maximum with employer matching since I became a shareholder in my practice. The life insurance savings approximately doubled our overall savings rate above the qualified plan contributions. I chose to put all of my pretax and after-tax investment dollars into tax deferred and tax exempt investments so as not to deal with capital gains taxation, tax on interest and distributions.

[Editor’s Note: This section was previously incorrect and carried forward from a prior interview. It is now correct as stated by the author. TPP]

I have learned many lessons as a self directed retirement investor in the last 11 years. Now, I am a dividend and income investor, with my eye on total return with a significant “pay me now” and dividend reinvestment component to my strategy. I put all my effort on the buy side and rarely sell.

I rarely re-balance, except to supplement positions as new money becomes available. Nearly without exception, I purchase mid-to large cap, blue chip equities that pay above the market median in quarterly or monthly dividends. The metric to which I pay the most attention is the growth in cash flow through the portfolio from all sources.

I have dabbled in selling cash-covered puts and selling calls as well. However, this is a labor intensive hobby and I participate in that hobby very sporadically. I hate funds in general, but use them selectively in areas where I have no insight into market leaders and with international equities.

Emerging market bond funds have done well for me in addition to deeply discounted corporate mini-bonds between 2008 and 2013, which I liquidated when their values approached par value.

Alternative Investments Outside of the Market

We have owned real estate in the form of rentals, have been a limited partner in in-fill development, but my favorite and only current form of real estate investing beyond my home is in equity REITS. 15% of my retirement portfolio is spread across the REIT sector. I also let Schwab have a modest stake in my portfolio for their dividend-growth EFT (SCHD).

I consider social security to be the fixed income component of my portfolio. It will amount the equivalent value of about a $600-700k bond component to my retirement portfolio.

I continue to keep a substantial balance in cash value life insurance, although I have reduced the death benefits over the years to cover a steadily shrinking future earnings estimate as I approach retirement. The cash values have caught up to the declining premiums and I no longer have to feed these entities and they will grow from this time forward as dividends pay the premiums.

I have never looked at them as “investments”, rather as enforced savings and a safety net for my wife and son should they lose my earning capacity through an early demise.

4. If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?

To embellish on that theme, I much prefer tax deferred or tax exempt vehicles. I believe the earliest savings should go into index funds or very low risk, widows-and-orphans style equities, as they will have the longest time to work and should be protected from the shifting winds of markets.

5. If you have kids, are you saving for their college education? Describe where and how. For those with kids who don’t plan on saving for their college, please tell us why.

I consider my cash value life insurance to be my son’s 529-plan equivalent. My mother, at age 90, will not outlive her assets, and is likely to leave an estate which will result in somewhere around 250-400k windfall to my family within the next 5-7 years.

My wife’s folks are in their 80’s and increasingly frail, and we anticipate some degree of support, but to our good fortune, they have 4 children, 3 of whom have adequate means to provide meaningful support without a major sacrifice.

Retirement Goals & Gaffes (Mistakes)

1. What is “your number” and your age that you feel will allow you to retire? How’d you arrive at this number; give us some details.

Well, I guess I have already “retired”, as I am no longer doing what I was trained to do.

However, I never had a view of retirement as a life of leisure, filled with travel or golf or fishing. Retirement is more like redefining my contribution to others by taking what I have learned and transforming it into new ways of continuing the mission that are compatible with my age, energy, and tolerance for the business of medicine.

My first questions about every engagement are “is it fun?”, “Would I do it for free?”

We have lived relatively modest lives to this point and have little desire to change our habits in retirement other than spending more time tending the homestead together and working for our souls rather than our pocketbooks.

2. How much will you be spending annually in retirement? Give us some details.

We’ll spend just enough to cover living expenses and favored activities.

My goal is to live on social security, dividends and distributions, rental income and part time employment until my eyes, ears, hands and back are no longer able to support my motivation.

3. If you plan on retiring early (before age 65), how do you anticipate handling health care costs?

I can cover expenses on 7-10 days of work per month as a surgeon. That lives 2/3 to 3/4 of each month free to pursue other interests.

At the moment, Locums are filling that need, while a super-subspecialty, outpatient-only part time clinical practice start-up is about to go live. If it is successful, I’ll stop traveling to take work assignments, but I don’t plan to do any more than 8-10 days/month of clinical work and hopefully NO hospital-based care going forward.

4. If you plan on retiring early (before age 65), how do you anticipate handling health care costs?

Covering health insurance costs is the single most uncertain factor in the years between full time employment and Medicare eligibility. We have to solve that in another 12 months when our COBRA coverage is no longer available.

Advice & Farewell

1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?

Unless you want your epitaph to be “wish I had worked some more”, find ways to deploy your knowledge, skill and experience to have adventures of your own, rather than crash and burn at the salt-mine.

2. What is the toughest challenge facing physicians who are just finishing training?

Maintaining optimism and altruism in a world where there is less and less autonomy and more limited rewards for the hard work.

3. What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?

They are very risk adverse on behalf of their patients, and almost recklessly naive about how their retirement assets are being managed. There is educational content everywhere, but you have to pick it up and read it.

4. What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?

Chuck Carnevale, David Van Knapp on Seeking Alpha and elsewhere on the web; Sure Dividend blog.

5. What questions do you have that TPP readers might be able to answer?

What is the single most important thing to do vis-a-vis traditional and Roth IRAs between ages 59 1/2 and 70 1/2?

Lots of good questions, a lot of thought went into the effort. I’m glad I threw my hat in the ring.

Thanks for taking part in the Physician Finance Interview Series!

[Editor’s Note: A prior version of this interview had two mistakes in it that were not originally caught due to carrying forward the interview questions: The income of the interviewee and the interviewee’s response to question #2 in the Savings & Investing section. It is now correct as states by the author. TPP]

7 thoughts on “Physician Finance Interview # 13”

Great interview again. I love the advice of stressing getting adventures of your own rather than slaving away in the salt mine all the time.

That large mortgage debt would be a little scary for me personally to go into retirement with but since you are semi-retired it probably is not as bad, especially if you can cover all expenses with just working the 7-10 days a month you said. But I personally would not want to fully retire with that kind of debt hanging over me.

Glad that you have found a great balance and good luck with this transitional period

It’s great to hear the diversity of physicians and the many ways to achieve financial freedom for a meaningful retirement.

Interesting that this physician chose to have a cash value whole life insurance policy. In general, it seems to be shunned in the personal finance community due to the high fees and poor relative returns compared to separating the investments from the insurance. I wonder if it was all worth it for this physician and if he would do it again if he went back in time.

Thank you for the interview. Very informative. I am trying to understand how your net worth is calculated. Did you include your home value less the mortgage (i.e. $500K = 1.2 million assessed less the 700K mortgage)? Also, given your substantial combined income (>400K) and savings rate of 50% (that I’m assuming is post-tax), I’m surprised that your net worth is not more than 4 million. Post-tax savings of 120K (240K status post taxation of 400K) for 23 years is over 2.5 million…and that’s just principal and not interest generated (including compound interest). Also, are you including the amount of principal gained with each monthly mortgage payment in your post-tax savings rate of 50%? Have a wonderful semi-retirement/retirement. Thank you in advance for any answers/advice.

I didn’t intend to go into retirement with a load of mortgage debt. I didn’t intend to retire at age 57 1/2 either. We sold our “trophy home” in 2016, harvested a bunch of equity and paid off debt, kept a big chunk for down payment on the next home, which we intended to be much more modest, with more property to suit our semi-rural childhoods. Trouble is, my kind of surgeon couldn’t live far enough out to find that kind of property easily, so we compromised on a “country in the city” property with more square footage than we needed and a metro price tag. Our goal is to reduce our footprint by sharing; 1, 2, 3 accessory dwelling units for singles and elderly in-laws. At the time, I was still planning on staying in full time practice, but as noted previously, life happens.

I received advice on whole life policies from an advisor who was very patient in describing how it would be useful for estate planning and as cash that could be accessed in a tax deferred fashion in case of unexpected expenditures. Cash values saved our bacon when the worldwide financial meltdown occurred at a time when we were fairly leveraged in rental real estate and were forced to refinance at a time when values were down and the bank that held our mortgages failed. The FDIC sold our performing notes to an east coast predatory debt collector and they nearly drove us into insolvency. I was able to refinance through my credit union just before disaster struck, but needed a big chunk of cash to meet the non-owner-occupied loan to value ratio. We eventually harvested that cash back, but it was a PAINFUL 7-8 years in the meantime. Depreciation on the rentals provided a very substantial windfall tax shelter as well in one of my highest earning years as we sold them with the market recovery; big life lesson in leverage and liquidity…

We plan to live in our current home until traditional retirement age. Our boy will be fully fledged, parents will most likely be in the hereafter and we’ll escape to rural America or even overseas. One thing about a big whole life policy; most of the premium is a form of enforced savings. Returns are more like fixed income than equities, but as the cash value rises and your age advances, you can dial down the death benefit and dividends will cover the premiums completely, so no more cash outflow. I made good use of the cash value loan feature on more than one occasion, then paying it back. If not cash value life insurance I’d have put that money into an after tax brokerage account and be subjected to taxation on dividends/distributions as well as long term capital gains. Retained earnings within cash-value life insurance are not taxed. With FIFO, withdrawals start with contributions, so earnings remain protected. I am insured against debt and the cost of educating my child. Between my qualified plans, IRAs and my wife’s retirement assets, She would live quite well if I check out early.

My net worth calculation is an estimate; it is “our” net worth. There are retirement plans, IRAs, cash value life insurance, home equity and some miscellaneous durable assets. I had exactly 20 years to contribute to my qualified plans and maximized every year. We live in a state with a substantial state income tax, my total tax rate was near 50%, and since our income was combined, so was my wife’s. Finally, a short-lived “starter marriage” which failed before I finished training resulted in a division of the home equity I had built over nearly 9 years prior to marriage. The assets you build first are the ones with the longest earning horizon. That was my primary wealth accumulation vehicle during training and taking a 50% loss in year 10 was quite a hit. My second (and long term successful) marriage did not bring equivalent assets into the union. I escaped more easily than some from my first marriage; no child support, no alimony, but even then divorce is a wealth killer. I didn’t begin to actually get educated on the issue of retirement assets until I realized, just before the big meltdown in 2008, that 10 years of 401k contributions had earned me passbook savings rates and I fired the broker and began the painful process of learning from scratch about managing a retirement portfolio. What should I have done differently; should have held on to the first home I ever purchased and paid it off, free and clear. I should have held off on marriage until my head was clear, rather than in the fog of chronic fatigue during residency. I should have stayed out of the real estate market in the go-go days of 1997-2006. We made a lot of money, then gave most of it back in the following 8 years. I would have done far better buying REITS than directly investing in properties. I should have become a Bogle-head instead of following my elders in practice into a brokerage to manage my qualified plan assets. I should have kept a more modest death benefit and shoveled the same amount into my whole life policies; I was over-insured for a long time. I would have purchased a few fewer toys that ended up mostly unused until I gave them away as donations or sold them for a fraction of their acquisition cost. Most of all, I would have learned that the one value that can’t be bought is time. One is far happier with adequate time to participate in things that feed one’s soul, rather than squirreling away more money at the expense one’s mental and physical health. A wealth of relationships, a wealth of experiences and a wealth of memories are priceless. A bigger bank account is just that.

Today’s new physician has far more educational resources and wealth management information than was available when I started out. Altruism and the workaholic nature of medicine had its costs in “Patient care comes first”, and “I’m too busy to pay attention to that” and “be as I am, do as I do” from older peers and mentors. The House of Medicine has done a poor job raising it’s young. We’re a generation behind other professions in developing financially savvy professionals. I hope one or more readers will learn some small pearl from my experience that helps set their course more deliberately than I did mine.

Wow, what an outstanding response. Thank you for sharing your experience, advice, and wisdom.

This quote is priceless: “Most of all, I would have learned that the one value that can’t be bought is time. One is far happier with adequate time to participate in things that feed one’s soul, rather than squirreling away more money at the expense one’s mental and physical health. A wealth of relationships, a wealth of experiences and a wealth of memories are priceless. A bigger bank account is just that. “